European shares drop on inflation worries

The pan-European STOXX 600 was down ​0.5% at 604.09 points

European shares slid on Monday, as inflation worries lingered with no sign of ‌a deal between Iran and the U.S. to end their three-month-old war.

Global bond rout from last week deepened with inflation figures from China, Japan, U.S. and Germany spooking investors and weighing on the world’s stock markets.

Over the weekend, a drone strike ​caused a fire at a nuclear power plant in the UAE, Saudi Arabia reported intercepting ​three drones, and U.S. President Donald Trump warned that Iran must act “fast”.

It cemented fears ⁠that the war is unlikely to end soon as the Strait of Hormuz, a conduit for 20% ​of the world’s energy supply, remains shut. Oil prices increased on Monday.

The pan-European STOXX 600 was down ​0.5% at 604.09 points, as of 0822 GMT, after closing the previous week lower. Most regional bourses were also in the red with Spain’s IBEX 35 and France’s CAC 40 down 0.5% and 0.9%, respectively.

Short term, we remain neutral on ​European equities, said Michele Morganti, equity strategist and head of insurance at Generali Investments.

These two engines, Iran and AI CapEx, ‌are pushing ⁠inflation up, and 10-year rates are skyrocketing. That’s representing another negative for risk, Morganti said.

German Central Bank head Joachim Nagel said that central bankers could do “a lot more” to help financial markets and give them a positive momentum ahead of a Group of Seven finance ministers and central bankers meeting in Paris on Monday.

Money ​markets currently expect more ​than two rate hikes ⁠from the European Central Bank by the end of the year, with the first one likely in June.